Termination of existing electricity supply agreements for the Coega aluminium smelter project

The Department of Trade and Industry (dti, South Africa), Eskom, Industrial Development Corporation (IDC) and Rio Tinto Alcan jointly acknowledge that, although some progress was made in discussions regarding the supply of electricity to the Coega aluminium smelter project, it was insufficient to proceed. This has led to the termination of the Electricity Supply Agreement in accordance with its terms and conditions.

Alcan Inc. (which later became Rio Tinto Alcan) and Eskom entered into an Electricity Supply Agreement on 24 November 2006 for the supply to a potential aluminium smelter in the Coega Industrial Zone. The agreement was negotiated to provide for the long-term purchase of up to 1355 megavolt-amperes of electricity for the proposed 720,000 tonne greenfield Coega aluminium smelter project.

In the wake of South Africa's unplanned power outages in early 2008, a high-level task force consisting of representatives from the government, Rio Tinto Alcan, IDC, and Eskom was established to examine alternative timing and approaches to realising the Coega project. To date, the work of the task force has been productive but not conclusive enough to reach agreement prior to key deadlines.

Discussions between Eskom, Rio Tinto Alcan, IDC, and dti have continued over the past several months, but the parties agree that the current context regarding the supply of electricity has changed significantly and some of the terms of existing agreements would require further discussion and negotiation. The parties also concur that it is of utmost importance that a project like the Coega aluminium smelter come on stream when power is reliably available and the facility's consumption does not impact the daily needs of South Africans.

Eskom's Chief Executive, Jacob Maroga says "Eskom is committed to the continuation of the strengthening of the transmission infrastructure to the Eastern Cape in order to cater for future growth in the area."

Guy Larin, vice president, Business Development - Africa, Rio Tinto Alcan, said: "Rio Tinto Alcan is willing to pursue discussions with our key partners and stakeholders and we remain ready to assist South Africa in realising the considerable benefits of a smelter project in the Port Elizabeth area. Since November 2006, Rio Tinto Alcan and IDC have invested approximately US$130 million in the project, which was originally scheduled to begin construction in September 2008".

He added that, "Many of the attractive conditions for this project are still in place, including excellent infrastructure and a supportive community. Other elements, such as a long-term, competitive power supply agreement, are essential and would need to be re-negotiated. We fully understand that conditions surrounding the availability and forward pricing of power in South Africa have shifted significantly in the last two years."

Rio Tinto Alcan will respect its existing social, environmental and skills development commitments in the Nelson Mandela Bay area. "We have established good relationships with the communities and government of the Eastern Cape, and greatly appreciate their continued support through the long and difficult periods of this project," Mr. Larin said.

Representatives from the South African government and its agencies involved in promoting the Coega aluminium smelter project acknowledge that Rio Tinto Alcan has behaved in an exemplary way by supporting the communities and environment in and around Port Elizabeth, and moving the project towards fruition. However, as prevailing conditions have changed significantly since the original agreement was signed, further discussion between the parties would be required to allow the project to move forward.

For further information, please contact:

Rio Tinto Alcan Media Relations
Stefano Bertolli
Tel.: +1 514 848 8151
stefano.bertolli@riotinto.com

Rio Tinto Communications, Africa
Jean Chawapiwa-Pama
Tel.:+ 27 83 660 6586
jean.chawapiwa-pama@riotinto.com

Rio Tinto Media Relations, London
Nick Cobban
Tel.:+44 (0)20 7781 1138
nick.cobban@riotinto.com

Department of Trade and Industry
Tumelo Chipfupa
Tel.: +27 82 789 8915
tumeloc@thedti.gov.za

Eskom Communications
Andrew Etzinger
Tel: +27 11 800 5316
andrew.etzinger@eskom.co.za

Eskom Media Desk
Tel: + 27 82 805 7278
Tel.: +27 11 800 3343